Impact of new tax law on real estate values, pt. 2

https://therealdeal.com/2018/08/05/why-westchester-homes-are-getting-battered-by-dramatic-price-reductions/

It's often hard to pinpoint the true reason why property values are falling. While I'm not saying that the new tax law plays no part in the downturn, I don't think you could say that Rising interest rates and a market which was overheated with tremendous price appreciation for the past decade didn't also play a part. And of course part of the reason for high taxes there is high sales prices. While in NYC every parcel is reassessed, in many places they don't, and some a sale triggers a reassessment.
Other things to note is that as far as I know Westchester has the highest taxes in the country and that each town has it's own assessment Office with it's own set of rules. This makes the taxes especially when they are higher than expected a big issue when the market turns (with or without the new tax law) in the same way that coops in NYC with higher than expected monthly maintenance charges get hammered harder when the market turns down. As an example, there was a penthouse at 372 5th Avenue with high maintenance where the owner was willing to sell for $1 plus half of the proceeds from future resale of the unit (I'm not sure if anyone took them up on that).

As far as I have read, the Westchester market was red hot one year ago. And many were saying the tax law would have little to no impact on prices due to the positive benefits of the AMT repeal, the fact that there were already caps on tax deductions before the new tax law, there was relative lack of supply of existing homes especially in the middle of the market, and finally, the continued booming economy.

Interesting to note that the median price in Westchester is only $629,000.

I would simply say it could be anything that could trigger a housing recession in our markets not just the tax law. But I think it may be the tax law that people blame.

I think that 30 is spot on. It's very challenging to answer the "why" on a lot of these sorts of things.

I do suspect that the new tax laws will adversely impact the NY/CT/NJ/CA economies and housing prices, but I think it will take more time before we really feel the weight of it (and it's possible there are other changes in the meantime that would mitigate the impact).

There's another factor that I hope I'll be able to explain: as prices come down (and especially if interest rates go up) high taxes (or in the case of coops, maintenance) has a compounded effect. The lower the price, the more people object. So you think you can make up for the high taxes/maintenance by lowering the price but you just end up digging yourself into a deeper hole because the type of people looking in the lower price range just object MORE.
Here's an example:
We had unit 3W at 288 West St, which was about 1800sf and had about $1,800/month maintenance. 2W had also been foreclosed on, was on the market, and was a superior unit because it had substantially higher ceilings. So we had to be price competitive and priced ours at $199,000. Everyone who looked at it wouldn't touch it because "the maintenance is too high". But the maintenance wasn't really high for an 1800sf loft, is was high for a $199,000 buyer. So I got the crazy idea to raise the price to $299,000 (it took a LOT of convincing to get my partners to go along with that). Within a couple of week we had 3 competing offers. Of course any of them could have had it for $100,000 less if they had just come and looked at it when it was asking $199,000.

TeamM, what other changes might mitigate the negative impact of the tax cuts?

I'll also say that this is why I was able to convince my partners that we should renovate all units before putting them on the market because as we got prices up we would end up working with buyers who were more realistic about what they could and couldn't get for their money.

Interesting anecdote, 30. I fear we are entering a period where low prices and high maintenance will become the new normal.

I am hopeful that although we are clearly in a buyer’s market, a recently renovated unit will indeed attract more buyers if done properly.

I think there are several potential mitigating factors that could potentially arise. The most obvious two are (i) a further change to the tax code and (ii) if some of the workarounds are upheld.

I'm not saying they are likely, but they are two obvious ones.

I suspect the sting of next year's tax returns will bring more value to lower maintenance buildings, which I think the consensus is they usually get some premium to a higher purchase price for the lower monthly nut of a comparable building with high maint but generally "not enough".

I also wonder how really low/zero maintenance coops are planning things out - will the IRS allow the corp to credit back property taxes to their s/h or however else they do it?

In general when the market is up there is less discount than there "should be" for coops with high maintenance and when the market is down there is more discount than there "should be" (whatever that means).

When you feel the pain of the new tax law and wonder who supported it:
https://www.bloomberg.com/news/articles/2018-08-14/hot-dog-honcho-to-host-trump-campaign-fundraiser-in-the-hamptons

Very shortsighted in retrospect:

https://www.vox.com/policy-and-politics/2018/6/22/17492468/republican-tax-cut-law-poll

I think the pain of the new tax law is grossly exaggerated. The virtual elimination of the AMT is a huge benefit to most Manhattan apartment buyers.
Let's see how it shakes out in April.

Chasing, If your earned income is over $500k, as a nyc resident you will pay 1-2 percent more. In the 100-200k, it may be close to flat but likely you will extra. Any one who did not itemize will benefit. I do not read leftist propaganda but coasts got screwed by be tax plan.

I'm going by the advise of my accountant as well as several acquaintances'. We all itemize, and were advised of significantly lower tax bills next year, mostly due to AMT.

Agree, high incomes over $500k are going to get hit, the higher, the worst off due to loss of SALT.

Chasing, I think for individual situation, your accountant knows best.

Another factor to consider is that there are many properties in NYC where the taxes are artificially low. Tax abatements are common in new construction and there are also older buildings that seem to retain tax benefits. Here's one example: https://streeteasy.com/building/the-vaux-condominium/2m The taxes on that unit are barely more than $4K a year; losing that deduction will mean nothing to someone can afford a $1.3M apartment.